Changes in the policy statement include allowing channels to suggest borrowers “take out or do not take out” a certain type of mortgage and permitting the promotion of dual pricing strategies for execution-only sales.
The FCA also amended its sales process rules to highlight that it does not believe execution-only sales are inherently riskier than advised ones.
This is despite the FCA admitting in December that increasing execution-only activity heightened the risk of harm to a consumer who would be better supported by taking advice, and research it commissioned which found consumers do not always understand the protections they are losing when they complete mortgages by execution-only.
Cheaper deals available
Advisers will also be required to explain why they have not recommended a cheaper mortgage, where other products meet the customer’s needs and circumstances.
However, lenders’ in-house advisers will not have to explain if there are cheaper deals available through execution-only if they cannot access them to sell.
More customer interaction will be allowed before firms are required to give advice.
Perimeter guidance has also been changed to make clear that tools which allow search and filtering based on objective criteria are not necessarily giving advice, and to more closely align with the retail investments rules.
The changes take effect immediately, but there is an implementation period until 30 July 2020.
Easier to not give advice
There has been strong public criticism of the regulator for pursuing the changes, with claims it is trying to unpick the protections put in place by the Mortgage Market Review.
The regulator proposed the changes following its Mortgages Market Study (MMS), which was published in March last year.
“The changes we have made in this policy statement make it easier for firms to present options to consumers without giving regulated advice,” the FCA said.
“They help firms make execution-only sales channels easier to use. Similarly, recent changes to our responsible lending rules reduce regulatory barriers and help consumers get a mortgage that is right for them.
“These two changes complement each other to deliver the outcomes we want to see,” it added.
The FCA said it will evaluate the success of the changes through firm supervision and monitoring of regulatory returns and that it may also conduct research or work with firms to assess the impact of these changes, including consumer outcomes.
Responses were received from 66 firms, trade bodies and consumer groups, with most supportive of the proposals, the FCA noted.
“Intermediary firms and their trade body had some concerns about the proposal to make execution-only sales channels more accessible, particularly the proposal to remove prescriptive detail from execution-only sales policy,” it added.
The key proposals and the FCA response are broken down below.
Generic or regulated advice
Regarding its changes to the perimeter guidance (PERG) the FCA said the example ‘I suggest you take out (or do not take out) a variable rate mortgage’, by itself, is not regulated advice.
“Instead, it is an example of generic advice rather than advice on whether to enter into a regulated mortgage contract,” the FCA said.
It also rejected suggestions that consumers should be made aware that execution-only sales do not come with advice.
“Our rules already require firms to inform customers that the firm will not assess suitability and the customer will not benefit from the associated protections,” it said.
“The consumer research we published alongside CP19/17 showed that consumers generally understood they were buying without advice,” it added.
However, the FCA did not reference that this research showed consumers did not understand the protections they were losing or retaining, and that disclosure documents were poorly understood.
Removing prescriptive detail on execution-only policies
The FCA said it consulted on removing the prescriptive detail required in firms’ execution-only policies to bring this in line with advised sales and “to avoid implying we consider execution-only sales inherently riskier”.
Firms will still need to have an execution-only sales policy which is governed by “high-level rules in Senior Management Arrangements, Systems and Controls sourcebook,” it said.
“We have not added a prompt to buy protection in execution-only sales. We do not have such a prompt in advised sales.
“We believe execution-only sellers have similar incentives to advisers in raising protection issues with mortgage customers,” it added.
Execution-only pricing differences
Several objections were raised about allowing dual pricing for execution-only channels, however the FCA rejected all these.
It noted that the potential risk of price-sensitive consumers taking cheaper execution-only deals exists currently, as some firms already price differently.
And it added that the MMS found some consumers who were confident to choose a mortgage themselves found it difficult to do so because they were either diverted to advice or the execution-only sale channels were not easy to use.
“We hope this change, alongside others in this policy statement, will encourage firms to invest in marketing their execution-only sales and making these channels more accessible,” the regulator said.
“The risk of consumers using the advice from an intermediary to make an execution-only purchase already exists. Firms can choose to manage this risk, for example through their charging structure.”
It added that: “Firms must ensure the way they communicate the price difference to consumers is clear, fair and not misleading. We don’t consider there is a need for further guidance on how this is done.”